Target Rental Towel, Inc. v. Byrd
| Decision Date | 10 January 1977 |
| Docket Number | No. 13106,13106 |
| Parties | TARGET RENTAL TOWEL, INC., Plaintiff-Appellant, v. Johnny A. BYRD, Defendant-Appellee. |
| Court | Court of Appeal of Louisiana — District of US |
Love, Rigby, Dehan & Love by Truly W. McDaniel, Shreveport, for plaintiff-appellant.
J. Stacey Freeman, Shreveport, for defendant-appellee.
Before BOLIN, PRICE and MARVIN, JJ.
Plaintiff corporation (Target) appeals from a judgment rejecting in most part its demands to enjoin Defendant Byrd, a shareholder and former employee, from competing with Target in the business of renting towels to industrial and commercial users.
Two written agreements not to compete were signed by Byrd on December 13, 1971. One agreement (styled 'Covenant Not to Compete') was between Byrd and Rodney L. Stevens, as Shareholders of Target. 1 The other was between Byrd, as employee, and Target, as employer. Stevens signed this agreement for Target. 2
Target generally contends that Byrd, as a Shareholder in Target, and as a partner with Stevens in a 'partnership' as shareholders in Target, is not an 'employee' within the meaning of R.S. 23:921 which would preclude enforcement of non-competition agreements unless the employer incurs an expense in training the employee or advertising the employee's connection with the business. 3
The lower court held Byrd to have been an employee of Target and that Target had not spent a sufficient amount of money in training or advertising Byrd so as to come within the proviso of R.S. 23:921. The record fully supports the trial court's judgment and we affirm.
Where a person Sells a going business to a purchaser and remains an employee of the business after the sale, an agreement not to compete may be enforced against that person, should he terminate the employment and engage in competition. Gold & Suckle, Inc. v. Suckle, et al, 335 So.2d 713 (La.App.2d Cir. 1976). Liquidated damage provisions have also been upheld because of violation of a non-competition agreement executed between Partners upon creation of a true professional partnership. McCray v. Cole, 236 So.2d 863 (La.App.3d Cir. 1970).
As to those in employee-employer status, the controlling case is Orkin Exterminating Company v. Foti, 302 So.2d 593 (La.1974). There the Supreme Court granted certiorari to 'resolve a conflict in the intermediate court decisions interpreting the legality of agreements . . . not to compete.' As the Supreme Court there noted and held, the basic public policy of Louisiana disfavors non-competition agreements exacted of employees. The 1962 amendment to R.S. 23:921, providing that such agreements could be enforced where the employee incurs expense in training or advertising the employee, was there held Not to repeal the basic public policy. The Supreme Court said:
'In view of the fundamental policy of the basic statute, the apparent purpose of the 1962 amendment, . . . 'is to protect an employer only where he has invested substantial sums in special training of the employee or in advertising the employee's connection with his business.'' 302 So.2d 593, 597.
The court had earlier stated:
Delta Finance Company of Louisiana v. Graves, 180 So.2d 85 (La.App .2d 1965) is more analogous to the rationale of Aetna Finance Co. v. Adams, supra, than as to National Motor Club v. Conque, supra. Indeed the trial court there relied on National Motor Club. We distinguished National Motor Club and reversed the trial court, citing the fact that National Motor Club conflicted with Aetna Finance Co. We do not find the Delta Finance Company case authoritative here for the reasons expressed in the Orkin Exterminating Company case by our Supreme Court in 1974.
The basic public policy of Louisiana disfavors the enforceability of agreements not to compete exacted from employees by employers. Only in instances where the employer has invested substantial sums in special training of the employee or in advertising the employee's connection with the business, will the proviso of R.S. 23:921 be recognized and then to the limited extent therein provided.
The record reveals that Byrd was working for a competitor, American Dust Control, before he began working for Target in December, 1971. Byrd was solicited by Stevens to come to work as manager for Target, which was newly incorporated. Target's predecessor and associated company was Target Wiping Cloth Company, owned by Raymond Stice. The wiping cloth company owned the facilities out of which Target operated, provided office space and cleaned and recleaned towels with which Target serviced its customers. Target paid the wiping cloth company for these services and facilities. Byrd owned no interest in the wiping cloth company.
Byrd's duties were establishing, as well as servicing, routes among customers who were solicited to use towels and products of Target. Byrd was promised ten percent of Target's shares as an inducement to come to work for Target. About one month after he began working, this agreement was written and executed between Byrd and all the officers and shareholders of Target:
The agreement was consummated by the issuance of the shares to Byrd as contemplated.
In two or more transactions, Byrd thereafter bought from Stevens an additional 20 shares for cash. By December 3, 1975, Raymond Stice had died and Stevens was no longer a shareholder or employee of Target. On that date, David Stice (oldest son and heir of Raymond Stice) by corporate resolution, was authorized as secretary of Target, to cancel and reissue the stock of Target to reflect ownership by three persons of an equal number of shares. Byrd was given an additional three and one-third shares to equalize the ownership of the corporation, in a corporate resolution which stated in part:
'. . . That an additional 3 1/3 shares of Stock be issued to JOHNNY A. BYRD in addition to his thirty shares (30) for services rendered and to be rendered . . . and that the stock be (re)issued as follows:
David L. Stice 33 1/3 Shares
Jack Otis 33 1/3 Shares
Johnny A. Byrd 33 1/3 Shares"
David Stice controlled two-thirds of Target's shares and controlled the wiping company whose facilities and services Target was using. Stice periodically caused to be increased the rental and service fees charged to Target.
Byrd assigned this as the reason he quit Target about May 2, 1976, and resumed working for American Dust Control. Two other Target employees followed or accompanied Byrd from Target to American. This instant litigation was instituted about two weeks later against Byrd.
While Byrd, as a shareholder and officer of Target, enjoyed certain executive functions, he was nonetheless an employee of the corporation. He was paid a salary and more than one-third of his own shares came to him for services performed as an employee of the corporation. Byrd also received some commissions from Target ($50 for each 1,000 in gross sales above $9,000 per month). He was paid nothing in dividends and his status in the corporation, even as a one-third minority shareholder, was subject to the desire of the corporate board of directors, which of course was controlled by the two-thirds majority shares. The Right of control and direction in the conventional sense of the employment relation is one of the most important tests in determining whether one is an employee. Whether the right is exercised is of much lesser importance. Simpson v. Kelly Services, Inc., 339 So.2d 490 (La.App.2d Cir. 1976), Amyx v. Henry & Hall, 227 La. 364, 79 So.2d 483 (1955). We agree with the trial court that Byrd was an employee within the context of R.S. 23:921.
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